Stronger Manila GGR to boost Melco Crown: Nomura

Resilient junket and VIP demand have contributed to a strong growth in casino gross gaming revenue (GGR) in Manila in the fourth quarter of 2016, says Japanese brokerage Nomura. The better performance of the overall market is benefitting the operations of City of Dreams Manila (pictured), a casino resort in the Philippines promoted by a unit of Melco Crown Entertainment Ltd, the brokerage said in a note on Wednesday.

“Despite political pressure on Chinese nationals and increased violence related to the Philippine government’s crackdown on drug traffickers, we estimate market revenues grew in excess of 40 percent in fourth quarter 2016,” said analysts Harry C. Curtis, Daniel Adam and Brian H. Dobson. The Nomura team said the overall demand in the Manila gaming market “may continue to increase more than the supply growth”.

Casino resorts in Manila recorded overall GGR of PHP22.61 billion (US$454.9 million) in the third quarter of 2016, up 19.8 percent compared to PHP18.88 billion in the prior-year quarter.

Manila’s casino resort sector includes four properties, namely: Melco Crown’s City of Dreams Manila; Resorts World Manila, owned and operated by Travellers International Hotel Group Inc; Solaire Resort and Casino, controlled by Bloomberry Resorts Corp; and Okada Manila, promoted by Tiger Resort, Leisure and Entertainment Inc.

Nomura said it sees less downside risks for the overall operations of Melco Crown, “given VIP and premium mass led stabilisation in Macau, and stronger-than-expected GGR growth in Manila”. Melco Crown operates three casino properties in Macau.

“Our latest channel checks suggest fourth quarter property EBITDA [earnings before interest, taxation, depreciation and amortisation] at City of Dreams Manila could be at least US$10 million above the Street’s US$32 million estimate,” said the Nomura analysts.

“The positive surprise has been strength in VIP/junket, where we estimate Melco Crown grew revenues more than three times year-on-year, albeit off a relatively small VIP base (VIP GGR was US$27.3 million in fourth quarter 2015),” they added.

City of Dreams Manila generated adjusted EBITDA of US$45 million in the third quarter of 2016 compared to US$24.4 million in the same period of 2015. The year-on-year improvement in adjusted EBITDA was primarily a result of increased casino revenues, Melco Crown said in November.

The Nomura analysts said that while they expect “upside to consensus estimates” in the Philippines, they “remain cautious” about potential competitive pressures from Okada Manila, which had a soft opening on December 21. The property is expected to have an official launch at the end of February.

"We are building momentum and continuing to grow our business while at the same time operating more efficiently"Barry CottleChief executive and president of casino equipment maker and lottery services supplier Scientific Games